Continental Cas. Co. v. Lasalle re Ltd.

• Decision Date: 21 September 2007
• Docket Number: No. 07 C 4228.,07 C 4228.
• Citation: 511 F.Supp.2d 943
• Parties: CONTINENTAL CASUALTY CO., an Illinois corporation, Plaintiff, v. LaSALLE RE LTD., a Bermuda corporation, Defendants.
• Court: U.S. District Court — Northern District of Illinois

511 F.Supp.2d 943

CONTINENTAL CASUALTY CO., an Illinois corporation, Plaintiff, v. LaSALLE RE LTD., a Bermuda corporation, Defendants.

No. 07 C 4228.

United States District Court, N.D. Illinois, Eastern Division.

September 21, 2007.

Mark A. Kreger, Kimberly Melanie Hamm, Lord Bissell & Brook, Chicago, IL, for Plaintiff.

Robert J. Bates, Jr., Maryann C. Hayes, Bates & Carey LLP, Chicago, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

CASTILLO, District Judge.

Before the Court is the motion of Plaintiff Continental Casualty Co. ("Continental") to stay arbitration proceedings commenced by Defendant LaSalle Re Ltd. ("LaSalle"). (R. 23.) For the following reasons, the motion is granted.

BACKGROUND & PROCEDURAL HISTORY

Continental, an Illinois corporation having its principal place of business in Chicago, and LaSalle, a Bermuda corporation having its principal place of business in Hamilton, Bermuda, were parties to several reinsurance agreements,¹ including one known as "All Classes Excess of Loss Retrocession Agreement No. 8550-98" effective from July 15, 1998 to December 31, 2000 ("Retrocession Agreement"). (R. 22, Am. Compl., Ex. B, Retrocession Agreement; Id., Am. Compl. ¶¶ 11-12.) The Retrocession Agreement contained an arbitration clause providing: "Any irreconcilable difference of opinion arising between the Reinsurer [LaSalle] and the Retrocessionaire [Continental] in respect of the Agreement or its validity shall, as a condition precedent to any right of action, be referred to Arbitration ...." (Id., Ex. B, Retrocession Agreement, Art. XXX.)

In April 2004, Continental and LaSalle executed a Commutation and Release Agreement ("Commutation Agreement"), purporting to "fully and finally terminate, release, determine and fully and finally settle, commute and extinguish all their respective past, present, and future obligations and liabilities, known and unknown, fixed and contingent, under, arising out of, and/or pursuant to the Reinsurance Agreements and any other agreements relating to or arising out of the Reinsurance Agreements...." (Id., Am. Compl., Ex. A, Commutation Agreement at 1.) The Commutation Agreement did not contain an arbitration clause. (See id.)

A dispute subsequently arose between Continental and LaSalle, and on May 31, 2007, LaSalle made a demand for arbitration. (Id., Am. Compl., Ex C, Notice of Request to Arbitrate.) Specifically, La-Salle seeks to collect amounts allegedly owed by Continental for its share of claims LaSalle paid to its cedent, the Hartford Insurance Company of Canada ("Hartford"). (R. 25, Def.'s Opp. to Mot. to Stay at 2.) According to LaSalle's arbitration demand, LaSalle agreed to resinsure Hartford for the period July 15, 1998 to December 31, 2000. (R. 22, Am. Compl., Ex. C, Notice of Request to Arbitrate.) Their agreement covered six excess of loss layers; LaSalle assumed 55 percent of the first two layers and various percentages of the upper layers. (Id:) The reinsurance program was fronted by LaSalle and was retroceded to several reinsurers, including Continental's affiliate, The Niagara Fire Insurance Company ("Niagara Fire").² (Id.) The program was administered by Aon Re Canada Inc. ("Aon"). (Id.)

According to LaSalle, prior to April 27, 2004, certain claims from Hartford were reported to Niagara Fire by Aon. (Id.) LaSalle alleges that it did not receive notice of the claims prior to the date the Commutation Agreement was executed, and that it was otherwise unaware of the Hartford claims, since all notices and accounting were being handled between Aon and Niagara Fire. (Id.) According to La-Salle, Niagara Fire would not pay any portion of the Hartford claims, instead asserting that it is not responsible for payment by virtue of the Commutation Agreement. (Id.) LaSalle disputes this, alleging that "there was no intent by LaSalle in the Commutation Agreement to release Niagara Fire from its ongoing liability for Hartford claims under the fronting program." (R. 22, Am. Compl., Ex C, Notice of Request to Arbitrate at 2.) LaSalle demanded arbitration to settle that dispute. (Id.)

On July 25, 2007, Continental filed an action in the Circuit Court of Cook County seeking a declaration of its rights and obligations under the Commutation Agreement. (R. 1, Notice of Removal, Ex. A, Continental's State Compl.) Specifically, Continental claimed that the Commutation Agreement extinguished all of its obligations under the Retrocession Agreement, including its duty to arbitrate disputes, and that LaSalle's demand for arbitration was therefore improper. (Id. ¶¶ 1-8.) Continental further alleged that it was not liable for any of the Hartford claims referenced in the arbitration demand under the express terms of the Commutation Agreement. (Id. ¶¶ 8, 16-25.) On July 26, 2007, LaSalle removed the case to federal court based on diversity jurisdiction, where it was assigned to this Court.³ (R. 1, Notice of Removal.)

Continental thereafter filed an Amended Complaint for Declaratory Judgment, to Stay Arbitration and For Other Relief. (R. 22, Am.Compl.) In its Amended Complaint, Continental seeks: a declaration that LaSalle's underlying claims regarding the Hartford funds are barred by the terms of the Commutation Agreement; entry of an order indefinitely staying and enjoining the arbitration proceeding; and entry of an award of damages for. LaSalle's alleged breach of the Commutation Agreement, including reasonable attorneys' fees. (R. 22, Am. Compl. at 8-9.) Along with the Amended Complaint, Continental filed this motion for a stay of the arbitration proceeding initiated by LaSalle. (R. 23, Pl.'s Mot. to Stay at ¶¶ 13-4.)

ANALYSIS

The Federal Arbitration Act ("FAA") embodies a federal policy favoring enforcement of arbitration agreements. Moses H. Cone' Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). The FAA provides that an arbitration clause in a contract involving a commercial transaction "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. A court, "upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement." 9 U.S.C. § 3. In deciding whether a dispute must be submitted to arbitration, any doubts concerning the scope of arbitrable issues must be resolved in favor of arbitration. Moses H. Cone Mem'l Hosp., 460 U.S. at 24-25, 103 S.Ct. 927.

However, as with any other contract, the parties' intentions control. Id. at 24, 103 S.Ct. 927. "[A]rbitrators derive their authority to resolve disputes only because the parties have agreed in advance to submit such grievances to arbitration." AT & T Tech., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 648-49, 106 S.Ct, 1415, 89 L.Ed.2d 648 (1986). Thus, an arbitration clause cannot be enforced against a party who has not agreed to arbitrate. Id.; Gibson v. Neigh. Health Clinics, Inc., 121 F.3d 1126, 1130 (7th Cir. 1997). In deciding whether the parties agreed to arbitrate, courts apply state contract law governing the formation of contracts. James v. McDonald's Corp., 417 F.3d 672, 677 (7th Cir.2005); Hawkins v. Aid Assoc. for Lutherans, 338 F.3d 801, 806 (7th Cir.2003). Illinois law applies here.⁴ (R. 22, Am. Compl., Ex. A, Commutation Agreement, Art. 11(g)) ("This Agreement shall be governed by and construed in accordance with the laws of Illinois without regard to principles of conflicts of law.").

Under Illinois law, the Court must interpret the language of the contract in accordance with its plain meaning and must construe the contract as a whole. Brooklyn Bagel Boys, Inc. v. Earthgrains Ref Dough Prod., Inc., 212 F.3d 373, 378 (7th Cir.2000) (interpreting Illinois law); William Blair & Co., LLC v. Fl Liquid. Corp., 358 Ill.App.3d 324, 294 Ill.Dec. 348, 830 N.E.2d 760, 770 (2005). The Court also must ascertain and give effect to the intent of the parties. W.W. Vincent and Co. v. First Colony Life Ins. Co., 351 Ill. App.3d 752, 286 Ill.Dec. 734, 814 N.E.2d 960, 966 (2004). A written contract is presumed to speak the intention of the parties who signed it, and their intentions must be determined from the language used. Id. Additionally, "a court cannot alter, change or modify the existing terms of a contract or add new terms or conditions to which the parties do not appear to have assented, write into the contract something which the parties have omitted or take away something which the parties have included." -Gallagher v. Lenart, 367 Ill.App.3d 293, 305 Ill.Dec. 208, 854 N.E.2d 800, 807 (2006). A presumption exists against provisions that easily could have been included in the contract but were not. Id. Further, where a contract purports on its face to be a complete expression of the parties' entire agreement, courts will not add another term about which the agreement is silent. Id. The Court's analysis begins with the language of the contract itself, and "[i]f the language unambiguously answers the question at issue, the inquiry is over." Emergency Med. Care, Inc. v. Marion Mem. Hosp., 94 F.3d 1059, 1060-61 (7th Cir.1996) (interpreting Illinois law).

The Court turns, then, to the express language of the Commutation Agreement. The Commutation Agreement stated, "The Parties now wish to fully and finally terminate, release, determine and fully and finally settle, commute and extinguish all their respective past, present, and future obligations and liabilities, known and unknown, fixed and contingent, under, arising out of, and/or pursuant to the Reinsurance Agreements and any other agreements relating to or arising out of the Reinsurance Agreements...." (R. 22, Am. Compl., Ex. A, Commutation Agreement at 1-2) (emphasis added). To that end, the Commutation...